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An Economic Approach to Environmental Progress

Jan 17 , 2017
With the advent of the Trump administration, many environmentalists are experiencing a sense of utter depression. President-elect Trump does not appear to agree that rapid development of renewable energy is good for the economy and the odds are that he and his Republican Congress will cancel many of the programs and incentives, such as subsidies, that were meant to promote renewables.
But despair is premature. Rather than abandon hope, or even delay it at least 4 years, environmentalists can modify their approach with a tilt towards technologies that are more appealing to the new administration and arguably even better for the environment than the renewables advocated by President Obama.
International treaties have not been effective and their future prospects are gloomy. 
And even if they were successful, existing international treaties would barely reduce global warming over the next century.  According to a recent report by scientists at MIT, the Paris treaty, even if fully implemented, would reduce the expected atmospheric levels in 2100 by a miniscule amount. Instead of rising from the current level of 500 to 750 parts per million (ppm), the Paris treaty would limit them to 710 ppm. Thus even the highly touted Paris treaty can only be called a first step, ineffective unless followed rapidly by much more severe steps.
Arguably, more significant progress in controlling global warming has been accomplished through economically-driven energy progress. The United States met its Kyoto targets, not because it tried to, but because carbon reduction was driven by economics, in particular by the shale gas revolution, reducing the use of coal and replacing it with cleaner natural gas.
There are four areas that we can focus on, where economic incentives and environmental benefits are closely aligned. These will be the focus of smart environmentalism over the next decade. They are:
1. Nuclear power
2. Natural gas
3. Energy efficiency
4. Energy innovation
Nuclear power has come a long way in the past few decades, despite stifling regulation in the United States. New types of nuclear reactors, called “4th generation” reactors, including Small Modular Reactors (SRM), can be inexpensive and intrinsically safe.  Many simple designs use convection (not pumps) for emergency cooling, and if they start to overheat, they reduce power automatically. Some of these have no moving mechanical parts, no need for human intervention, and they produce no greenhouse gases or air pollution.
Yet these innovative and safe plants cannot be licensed in the United States, since the Nuclear Regulatory Commission has not developed the expertise or standards to allow it.  Although President Obama never opposed nuclear power, he did little to change this. Trump, who appears to be more pro-nuclear, could do much more.  In the mean time, 4th generation nuclear plants are moving ahead in China. Both China and the United States could take a leadership position by leading by example, and by making explicit the goal of using 4th generation nuclear to reduce future global warming and air pollution. 
When compared to coal, natural gas reduces greenhouse gas emissions by about two-thirds, and air pollution by a factor of 400. The United States has taken the leadership position when it comes to natural gas by leading a revolution in the exploration and production of shale gas, using horizontal drilling and fracking. This has been an economic boon, generating hundreds of thousands of jobs, and tens of billions every year in tax revenue.
And yet the environmental benefits are just as important. A recent study done by Berkeley Earth found that the single biggest factor in the reduction of greenhouse gas emission in the United States was a widespread substitution of shale gas for coal in electricity production. China has vast shale gas reserves, even bigger than those in the United States. However, a shale gas revolution in China is being held back by politics, as national oil companies seek to retain control of potential sites. The free market environment that allowed shale gas innovation in the United States to thrive is stifled in China. This could change in the coming years. It is even possible that Trump leadership could help China learn from the United States’ shale gas revolution, encouraging China to open up its production to small innovators from the United States.  If this were to happen, it would be to the benefit of all involved, both economically, and environmentally.
Almost two-thirds of energy in the United States is wasted through inefficiency and the number is even higher in China and most of the developing world. We are improving our energy efficiency every year, as we improve the energy efficiency of electric power plants, make more energy-efficient buildings and cars, add insulation to existing buildings, and as older technology in places even like coal plants becomes more efficient.
More efficient use of energy is profitable, it saves us money. And yet, because those who benefit are frequently not those who invest, there is not as much investment in energy efficiency as there should be. A more explicit focus on energy efficiency to mitigate global warming and air pollution could help.
Finally, energy innovation is an essential part of moving to a low-carbon and low-pollution future. Progress in solar energy has been rapid over the past decade and there will certainly be new innovations in the coming years that we can’t even imagine today. Government support of innovation makes economic sense in energy, as it does in many other areas. However, it is important that the government does not pick winners and losers, but rather broadly supports innovation as a whole. 
Both China and the United States have a role to play in each of these areas.  The Trump administration has the potential to make rapid progress on all of them and so does President Xi.  The next few years may see a new sort of environmental leadership emerge, one that focuses on advanced nuclear power, shale gas, energy efficiency, and energy innovation. Focusing on these areas would make sense even if we were not concerned about global warming or air pollution and they could bring together both economies to the benefit of billions of people around the world.
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